The engagement policy was introduced by the revised Shareholder Rights Directive (SRD II), that amended Shareholder Rights Directive with the aim to promote effective stewardship and long-term shareholder engagement by imposing transparency obligations on institutional investors (such as insurers and pension funds) and asset managers to the extent investments are made in shares admitted to trading on European Economic Area (EEA) regulated markets.
Institutional investors and asset managers shall develop a shareholder engagement policy, or they need to explain publicly why they have chosen not to do so.
The engagement policy must be made public, and it should describe how such entities:
1. Integrate the shareholder engagement in the investment strategy
2. Monitor investee companies on relevant matters, including:
a. Strategy
b. Financial and non-financial performance and risk
c. Capital structure and
d. Social and environmental impact and corporate governance.
3. Conduct dialogues with investee companies
4. Exercise voting and any other shareholder rights
5. Cooperate with other shareholders
6. Communicate with relevant stakeholders
7. Manage actual and potential conflicts of interests in their engagement.
Institutional investors and asset managers shall, on an annual basis, publicly disclose (in the annual report or separately, within 120 days of the most recent financial year):
A. How their engagement policy has been implemented, including:
a general description of voting behavior
an explanation of the most significant votes – the institutional investors and the asset managers need to define ‘most significant votes’ as the size of the shareholding as a proportion of an issuer’s total voting rights (in practice shareholdings of 3% or more of the issuer’s voting rights are considered significant votes)
the use of the services of proxy advisors
B. How they have cast votes in the general meetings of companies in which they hold shares (excluding secret votes and votes that are insignificant due to the subject matter of the vote or the size of the holding in the company).
The Romanian listed companies are more and more transparent, and it is expected that their shareholders in the scope of the SRDII (institutional investors and asset managers) to be more transparent on engagement policy aspects. However, the reporting obligations require additional resources as the volume of information that needs to be published is significant.